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Crafting the Perfect Short Sale Hardship Letter

The short sale hardship letter is by far the most important element to obtaining a short sale through your lender. The message you convey in this document can make or break your deal. Therefore, it's important to understand what you should and should not include in your hardship letter.

Short sales are quickly becoming an alternative solution for people facing foreclosure. In essence, a short sale is an arrangement between a homeowner and their lender, which allows the homeowner to sell the home for less than the amount owed on the mortgage note.

Recent housing reports state foreclosure rates escalated by 57-percent in January 2008. Many homeowners now find themselves owing more than the current market value of the home. This leaves them with two options -- face foreclosure or apply for a short sale.

Because of the explosion of short sale applications, experts suggest lenders are currently only accepting one out of ten applications. Part of the reason so few applications are accepted stems from the fact that the majority of people do not file the proper paperwork and the paperwork they do file is filled out incorrectly.

Organizing a short sale package will vary from lender to lender. However, most will request the following:

1. Financial Statement providing proof of income and expenses.
2. Hardship Letter - this is one of the most important parts of the package.
3. Two to three months (or more) of checking and savings statements from all borrowers.
4. Documentation from a Realtor or yourself which includes the listing information of the property.
5. Signed sales contract subject to lender approval
6. Estimate Settlement Statement (HUD-1)
7. Proof of buyer's financing

Keep in mind that lenders are not jumping through hoops to approve a short sale. Lenders and banks are in business to make money and accepting a short sale offer will cause them to incur a loss. When you provide a short sale package to your lender, it is imperative you prove to them there is no way you are capable of maintaining payments on the mortgage. You must be able to show them how it will be in their best interest to accept your short sale offer. How do you accomplish this?

First, provide supporting documentation showing every single penny you spend. No matter what circumstances arise, do not charge unnecessary expenses to your credit card or take out loans of any sort for at least three months prior to filing your short sale offer.

If, while reviewing your bank and credit card statements, the lender notices you purchased a big screen TV, new furniture or spent $100 at a fancy restaurant, you can pretty much kiss your short sale offer good-bye. If you have these types of transactions on your financial statements, you need to be prepared to offer a very convincing reason as to why they were not whimsical purchases.

Second, organize your financial records, receipts and any other supporting documents. If possible create a spreadsheet, or write things out on paper to provide the lender with a black and white financial analysis that clearly demonstrates you are in dire financial trouble.

Third, craft a compelling and heartfelt Hardship Letter. This letter is by far the most important document you can provide in a short sale offer. As a homeowner facing foreclosure, chances are you are embarrassed by the situation. You might want to hide or sugar-coat the truth. But, when it comes to a short sale, the Hardship Letter is the document that can make or break your deal.

First of all, keep in mind your offer will be reviewed by a human being, known as a Loss Mitigator. While it is the job of the loss mitigator to obtain the highest dollar for the mortgage note, remember they are real people with emotions. If you can strike an emotional cord with them in your hardship letter, you'll have a much better chance of having your offer accepted.

This should not be translated as saying you should fabricate a sob story. In fact, this is the absolute worst thing you can do. You also do not want to proclaim you fell behind because you are lousy at finances and purchased things you didn't really need. Neither scenario will produce a positive outcome.

Experts suggest hand writing your hardship letter. Believe it or not, a perfectly typed letter presented on high-quality paper can actually work against you in this case. If you have illegible handwriting, ask someone to hand write the letter for you. However, you will need to sign your own signature to the hardship letter.

At the top of the letter include the date, along with your name, address, phone number and email address, if you have one. Next include the name of your lender, along with your loan number. At the end of the hardship letter include the signature of the borrower(s), as well as the signature of any co-signers, if applicable.

The body of the short sale hardship letter will be used to tell your story. What happened to cause you to fall behind? Were you struck by a serious illness? Were you fired or forced out of your job? Did your spouse experience a catastrophic event that caused you to lose time from work? Was your child hit by a car or diagnosed with a life-threatening illness? This is the place to explicitly explain the series of events that caused you to fall into financial ruin.

Last, but not least, take responsibility. Do your best to maintain a positive attitude, even though it is a difficult and emotionally-draining experience. Do not place blame and never threaten or become defensive when negotiating with the loss mitigator. You will achieve much better results if you remain calm, cool, collected and respectful. You want to present an emotional plea for help that says, "I am in distress and I need your help." Express gratitude and thank them for taking time to review your short sale offer.

If you are considering filing a short sale application with your lender, it's a good idea to work with a professional who is experienced in this field. They can help ensure you have all of the necessary paperwork and that everything is filled out properly. Additionally, they can assist you with your hardship letter to make certain you have included information that can help you and eliminate information that can harm you.

Simon Volkov is a private real estate investor who helps individuals liquidate their real estate assets. Before you contact your lender regarding a short sale package, contact Simon Volkov by filling out our secure Short Sale form. Upon receipt of your information, Simon will contact you to further discuss your real estate options.

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Published on March 14, 2008 at 07:46 AM | Comments: 3

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Great info!

Nashville Short Sales | October 14, 2010 9:11 PM


they better start jumping through those hoops, because smart consumers are now realizing that $100k+ is not worth keeping a good credit score for them, and those banks end up losing a LOT more when the owners 'strategically default' and let it go into forclosure. Especially in non-recourse states where they don't want to risk their 1 action betting on whether the buyer has the money to pay deficiency, and instead opt for that good ol' non-judicial forclosure. now they have to deal with the sale themselves, most likely get a lot less money for it, and can't get a deficiency judgement.

Owning a home is nice and all, but in an economy like this that 'investment' is going nowhere for quite a while, and honestly...who wants to take on more debt... if I was these people getting screwed around with on a short sale, and told stupid things like "you have to be late on payments before we'll....blah blah blah". I'd say, "as you wish", stop paying, and they'd never hear from me again.

well... | August 23, 2011 10:02 PM


I was actually told that you have to miss payments before they would even consider doing a short sale. Next time someone from the company called me about why I didn't make payments, that is what I told him. He then called me a liar and I hung the phone up on him. I have since called then about the short sale and the gentleman I talked with was very friendly and helpful.

Elizabeth | September 12, 2011 11:02 AM


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